Royal Bank of Scotland is to pay a fine of £14.5m after it failed to address serious failings in its advice to mortgage customers for nearly a year after being alerted by the City regulator.
In one “highly inappropriate” case an employee warned that interest rates could soar to 5.5 per cent while trying to push a five-year fixed-rate home loan deal, the Financial Conduct Authority (FCA) found.
Despite the fact that the watchdog at the time, the Financial Services Authority (FSA), raised concerns about branch and telephone sales at the RBS and its NatWest business in November 2011 no proper response began until the end of September the next year.
It is the latest embarrassment for the state-backed lender after six previous fines in the last four years by the FCA or FSA and covers a period from June 2011 to as recently as March last year. All of the senior management involved are understood to have suffered “financial penalties”, likely to mean bonus clawbacks.
Brian Hartzer was head of the retail arm of the lender until June 2012 when he left to return to Australia to work for banking firm Westpac.
In an interview at the time he told the Financial Times that he had “rebuilt nearly everything about the place” adding: “The core businesses are in a much better place than they were three years ago.”
Mr Hartzer was succeeded by Ross McEwan, who temporarily suspended the lender’s mortgage advice shortly after taking over in September 2012 when he became aware of the problems.
Mr McEwan succeeded Stephen Hester as chief executive of RBS, which is 80 per cent owned by the taxpayer, in October 2013. Responding to the FCA’s findings, he said: “This was unacceptable and should never have happened.
“We have worked hard to put things right. When I joined the bank we completely overhauled our processes, and took all our mortgage advisers off the front line for an extensive period of time to get the training required.”
The failings cover a period during which the group sold 30,000 mortgage products on an advised basis, representing £106m of revenue. RBS has agreed to contact all of the customers about the advice they have received.
RBS and NatWest failed to consider fully a customer’s budget when making a recommendation while staff did not advise what mortgage term was appropriate.
In a mystery shopping exercise in 2012, three out of nine sales advisers “provided customers with their own predictions as to the future movement of Bank of England base lending rates”. This was described by the FCA as “highly inappropriate”.
One case saw a customer who asked an adviser if interest rates would rise told: “Yes. Absolutely.” The bank employee suggested they could reach 5.5 per cent. Interest rates have been held at 0.5 per cent since 2009.
The adviser recommended a five-year fixed rate mortgage to the customer and told them: “If we don’t increase rates with this double dip recession the economy is in dire straits. Rates will rise.”
The regulator said there was no evidence of widespread detriment to customers, although where it has been found, the group had taken steps to compensate them.
Tracey McDermott, director of enforcement and financial crime at the FCA, said: “Where we raise concerns with firms we expect them to take effective action to resolve them without delay. This simply failed to happen in this case.”